Rentcharge, or chief rent as it’s sometimes known, is a peculiarity that occasionally affects freehold property. Though it’s getting increasingly rare, you might still encounter it if you’re buying properties in certain areas, particularly round Manchester or in south-western areas like Bristol and Bath.
Essentially it’s a very small annual payment (usually in the region of five or ten quid) to a person or company called a ‘rentowner’. The rentcharge is their only legal right over the property. In the general course of things, rentcharges are a fairly trifling matter – and in fact they’re in the process of being phased out – but there are various complications that can arise. If you’re taking on a property with a rentcharge then it’s worth being aware of your rights and responsibilities.
Where does rentcharge come from?
In times gone by, rentcharge was pretty common. It was an old-school way of facilitating property development. Landowners would allow developers to build on their land, and in addition to (or instead of) the purchase price, they would also get an annual payment for evermore from whoever lived in the properties that were built.
What are the possible complications?
Back in the day, five pounds a year was a tidy sum, but inflation has pretty much decimated the profitability of rentcharges, at least as far as their base value is concerned. This means the rentowners are often looking to level additional charges, some of which are not remotely within their rights. These frequently surface during a sale, when everyone is under pressure, and willing to shell out a fifty here and there in the interests of keeping the wheels greased. You might find rentowners trying to charge you an administration fee for changing the name on the account, claiming that there is unpaid back-rent, or suddenly noticing that the previous owners have carried out ‘unauthorised’ alterations to the property, for which there is a penalty to pay. The amounts are rarely very much, but in the context of such tiny annual rentcharges, they represent a substantial profit, particularly when you consider that the rentowner will often have an interest in large numbers of properties.
Are these extra charges legal?
Usually not. They have no legal interest in the land beyond the rentcharge, so as long as you pay that regularly (whether they send you a bill or not), they haven’t a leg to stand on. In the case of allegedly unpaid back-rent, you might have to pay it off if you can’t prove that the previous owner has stumped up (your solicitor should be able to advise you on this), but the rentowner certainly has no right to tell you what you can and can’t do to your own property.
Is rentcharge the same as ground rent?
Rentowners will sometimes try and call rentcharge ‘ground rent’, but in fact these are two different things. Ground rent is an annual charge payable by leaseholders, to a freeholder who has substantial powers over them. Rentcharge, on the other hand is a simple payment by the owner of a freehold property, with no other strings attached.
How long will rentcharges continue to exist?
The Rentcharges Act 1977 effectively abolished rentcharges, with a few exceptions. Since that date, no new rentcharges have been created, and almost all existing rentcharges will cease to exist in mid-2037. So when you think about it, the rentowner’s total interest in your property is unlikely to exceed £200, and is quite possibly a great deal less.
Can I just pay it off and have done?
In theory, yes. This is called ‘redeeming’ your rentcharge. There are forms on the gov.uk website that you can fill out and submit to the Department for Communities and Local Government, and in general it ought to cost you around 16 times your annual rentcharge. However, the formula used to calculate the final payment is currently void, and so until the government comes up with a new one, they won’t be able to complete any applications.
The other option is to try and come to an arrangement with your rentowner directly. If you go down this route, make sure you consider any offer in the context of the total amount you have left to pay.
Gov.uk features more detailed information about rentcharges, including guidance on apportioning rentcharge, and the relevant forms for paying it off.